Updated: Employee Retention Tax Credit

The recently enacted (December 27, 2020) COVID relief stimulus legislation, “Stimulus #2,” made significant modifications to the Employee Re-tention Tax Credit. Originally enacted by the CARES Act, the Employee Retention Tax Credit was previously unavailable to PPP borrowers. Stimulus #2 expanded the availability of the credit to PPP borrowers, provided that wages paid with PPP funds are not eligible for the credit. This change was made retroactive to the date of enactment of the CARES Act (March 12, 2020), meaning that businesses eligible for the credit can file for an immediate refund of the credit for qualified wages paid in 2020 (up to a maximum credit of $5,000 per employee for 2020 qualified wages).

The changes below are effective for wages paid January 1, 2021—June 30, 2021.

Am I Eligible?

  • Operations fully or partially suspended due to a COVID-19 related governmental order, OR

  • For Q1 and Q2 2021, a greater than 20% decline in gross receipts compared to the same quarter in 2019 (quarters in 2020 still require a greater than 50% reduction in gross receipts).

How Much is the Credit?

  • 70% of qualified wages* paid to an eligible employee.

  • Capped at $7,000 per employee, per quarter ($14,000 for 2021 + $5,000 for 2020).

  • Maximum credit of $19,000 per employee.

*For employers with 500 employees or less, wages paid to all employees are “qualified wages”; for employers with greater than 500 employees, “qualified wages” are limited to wages paid to employees not providing services.

How Can I Claim the Credit?

  • Current  (2021): In anticipation of receiving the Employee Retention Credit, Employers can immediately reduce the federal employment tax deposits.

  • Also: Employers may request an advance by filing the Form 7200.

  • Previous (2020): For previous quarters, the employer can file Form 941-X and claim the credit.